Jefferson County, Ala., Commissioners Approved New Sewer Rates

Jefferson County, Ala., commissioners approved new sewer rates Tuesday under a structure that is expected to generate 5.9% more revenue for the system, starting next March.

In the first rate increase in nearly five years, most residential customers will pay less than $2 more per month.

“The new rates provide a fair, reasonable, non-discriminatory, and feasible rate structure for the commission to move toward an exit from bankruptcy,” commissioners said in a release.

The new rate structure, which is designed to incorporate losses due to corruption and asset values that are pegged at far less than the outstanding $3.14 billion of debt, is coming under fire from creditors and Alabama’s attorney general, Luther Strange.

Strange argued that the county’s complex formula, ostensibly based on various state laws, should factor in corruption and reduced book values since the system was overbuilt by the county in some areas.

Because Strange said the new rate structure is “based on substantially incomplete data,” and he did not support the 5.9% increase in revenues at this time.

“An overwhelming question in our minds is whether the sewer system customers should be required to pay for any part of the fraudulent wastewater plant expenditures of $1.832 billion,” Strange told commissioners in a three-page letter. Bank of New York Mellon and Financial Guaranty Insurance Co. filed motions with the bankruptcy court late Monday seeking relief from the county’s proposed new rate structure.

BNY Mellon, the trustee for the defaulted sewer warrants, said the county has devised a new rate structure based, in part, on inapplicable investor-owned and regulated utility rate-setting concepts that allocate risks of loss to the utility’s equity investors.

“The warrant holders, however, are secured creditors, not equity holders,” the trustee said, adding that the sewer system is a government-owned utility that “has no equity holders to pay for the costs of its own mismanagement.”

In addition to using a novel approach based on private utility standards, the county has hired experts to value the system in a way that is different from what was used to finance it, BNY Mellon said.

“Presumably, the county intends to use this information to argue for an involuntary write-down of its special revenue indebtedness in an effort to cram down the warrants,” according to BNY Mellon.

“The proposed rate adjustments sponsored by the county are woefully inadequate and do not reflect a good faith effort by the county to comply with its legal and/or financial obligations in connection with the ownership and operation of the sewer system,” said FGIC, which insures $1.6 billion of outstanding sewer warrants.

FGIC has also asked the judge to take steps that would allow the former receiver to resume setting sewer rates in amounts that support secured creditors’ claims.

The court has scheduled a hearing Nov. 15 to consider motions brought by BNY Mellon and FGIC.

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